A Pioneer's Perspective

Picture this: A 21-year-old drops out of college and raises venture capital in order to build a global communications network that will revolutionize the financial services industry. Sounds like old news, right? It's so 1999. Actually, try 1969. That was the year
Neil Hirsch
Neil
Hirsch
founded
Telerate
, a financial information service that provided securities prices for the international bond and currency markets. In a remarkable display of foresight, Hirsch helped usher in the age of electronic networks by building a global infrastructure of terminals. For more than 20 years, he helped Telerate become one of the most powerful brands in financial information and eventually sold the company to
Dow Jones
for more than $1.5 billion in 1990.

The financial and technology markets were much different back in 1969. Even as a Wall Street novice, Hirsch was able to identify significant inefficiencies in the fixed income, money and foreign exchange markets. "When I started Telerate, they were using chalkboards to keep track of prices," Hirsch explains. Much has changed since then, and that change is a big part of today's market woes.

Information is now a commodity. Some information vendors can't make any money because there is too much competition, few barriers to entry and minimal value-add. Information consumers and financial professionals are in a precarious position too. Information ubiquity has leveled the playing field, making it more difficult for investors to profit from market inefficiencies and arbitrage opportunities.

Blame it on the global public network known as the Internet. Telerate spent millions on a communications infrastructure that helped block competitors from entering the market. The company's exclusive partnerships with information providers kept the competition at bay. Once Telerate established a critical mass, all the company had to do was supply the data and reap the profits. Today life is much more difficult for companies in the information business. "I love the Internet, I love using it, I think it's great," admits Hirsch. "But since the beginning, I haven't seen how to make money, because the information is given away. I haven't seen any information that's exclusive to one person so that they can charge anything for it."

That's why Hirsch is so happy he got out of Telerate when he did. One might think he regrets not being at the helm of Telerate in the 1990s, when information networks became the hottest thing since sliced bread and tulip bulbs. Not so says Hirsch. "We were there at the exciting time, when we were the pioneers."

Not only did Hirsch bow out with prescient timing, he started things right too. Rather than approach the public markets early on for capital, Hirsch financed the company with venture capital and focused all of his efforts on profitability. In contrast, the past several years have seen a dramatic compression of the financing cycle. During technology's recent bull run, firms were going public with no profits and no history. What's the problem with a premature IPO? "You've got to tell everybody what you're doing," warns Hirsch. "You've got to pull your pants down in the prospectus. You've got analysts' and shareholders' meetings and it takes a lot of focus off what you should be doing, which is running the business. That's not healthy." In a sense, dot-coms destroyed whatever minimal proprietary barriers, technologies and strategies they had by divulging their business models to the world before they had even established market traction.

Indeed, the future is fairly bleak for many technology and information companies. For some, the only hope now is to be scooped up in an acquisition. But there again, Hirsch's business tale offers some sobering insight. At about the same time that Hirsch sold Telerate to Dow Jones
, the business started to go downhill. What went wrong? "They felt that they could run the business," explains Hirsch. "They were newspaper people and I don't think understood the information business like they thought they did."

New economy firms may face similar difficulties as larger firms swallow them up and attempt to assimilate cultures and strategies.

Is there any hope in these pitiful markets? What's an eager entrepreneur to do? Don't go looking to Neil Hirsch for help; he's keeping most of his current foresight to himself. "Valued-added products and analytics could give you an edge or any type of exclusive information that you can get a hold of," offers Hirsch. "There are still certain areas where I think that could be created...I have some ideas of my own, but I'd rather not talk about it."

For a glimpse at what Hirsch is pondering, you might consider the company he currently owns,
Loanet
, which tracks securities lending for activities such as short-selling. Since he left Telerate in the early '90s, Hirsch has been toying with Loanet and generally enjoying his time on the sidelines. One thing is certain--Hirsch will wait until the time is right. "I'm glad I'm not in this market," says Hirsch, now 53.

We're sure most investors, entrepreneurs and executives wish they could say the same.